Mid-Year Economic and Fiscal Outlook (MYEFO) 2017-2018

18 December 2017

Overview

Treasurer Scott Morrison and Minister for Finance Mathias Cormann released the national Mid-Year Economic and Fiscal Outlook (MYEFO) today, declaring the Turnbull Government is “bringing the budget under control” and remains on track to achieve a surplus in 2020-21.

MYEFO shows the size of the 2017-18 underlying cash deficit will be $23.6 billion, an improvement of $5.8 billion since the Treasurer delivered the Budget in May, off the back of stronger than anticipated company tax collections. The predicted surplus for 2020-21 will be $10.2 billion, an improvement of $2.7 billion compared to the Budget estimate. The net operating balance is also expected to improve from a deficit of $18.2 billion in 2017-18 to a surplus of $6.8 billion in 2019-20, increasing to a surplus of $20.9 billion in 2020-21.

Net debt is forecast to stabilise at lower levels compared to the Budget, peaking at 19.2 per cent of GDP in 2018-19, before falling to 17.2 per cent of GDP in 2020-21, representing a decrease of $10.9 billion on previous estimates. Australia’s gross debt is projected to be $23 billion lower at the end of the forward estimates than was previously forecast.

The Treasurer noted the Government should now not have to borrow for recurrent spending from 2017-18, for the first time since the Global Financial Crisis, stating “These are the welcome dividends of prudent fiscal management and a growing economy”.

The update reveals real economic growth of 2.5 per cent this financial year, slightly below the Budget forecast of 2.75 per cent, increasing to 3 per cent across the forward estimates, as the drag from mining investment diminishes. MYEFO indicates growth will be driven by non-mining business investment, household consumption, public final demand and exports. Unemployment is predicted to fall from 5.5 per cent in 2017-18, to 5.25 per cent in 2018-19, and remain steady through to 2020-21.

The Government has confirmed it will be proceeding with a range of reforms to the higher education sector, including a freeze on total Commonwealth Grant Scheme funding at 2017 funding levels and a limit on tuition fee assistance under all HELP and VET Student Loans. The Government will also lower the minimum repayment threshold to $45,000 from 1 July 2018 and use Family Tax Benefit lump sums to repay outstanding social security, student assistance or Paid Parental Leave debts from 1 December 2018. Other revenue measures include a freeze on family tax benefits part A and B until 2019 and extending waiting periods for newly arrived migrants before they can access certain welfare benefits, achieving savings of $1.2 billion over four years.

MYEFO also includes $2.1 billion for new and amended listings on the Pharmaceutical Benefits Scheme; $1.3 billion to implement the Quality Schools reform package; and an additional $150 million in new funding for the Medical Research Future Fund.

Key economic indicator forecasts:

Real GDP is forecast to grow by 2.5 per cent in 2017-18, increasing to 3 per cent in 2018-19

Unemployment at 5.5 per cent in 2017-18, which is forecast to fall to 5.25 per cent by 2018-19

Underlying cash deficit is expected to be $23.6 billion in 2017-18, before returning to a surplus of $10.2 billion in 2020-21

In other political news, Liberal incumbent John Alexander has won a critical by-election in the NSW seat of Bennelong over the weekend, despite a strong challenge by former NSW Labor premier Kristina Keneally, who secured a swing of more than five per cent to Labor. Despite this victory, today’s Newspoll reveals an unchanged Coalition primary vote of 36 per cent, with Labor maintaining a narrow lead on 37 per cent. In two-party preferred (2PP) terms, Labor leads the Coalition by six points, 53 to 47 per cent. The survey shows Prime Minister Malcolm Turnbull has experienced a boost in the preferred PM stakes, leading Opposition Leader Bill Shorten on 41 per cent to 34 per cent.

Cabinet reshuffle

The Government is expected to unveil a cabinet reshuffle as soon as tomorrow, with reports suggesting Attorney-General George Brandis will soon be appointed High Commissioner to the United Kingdom, replacing Alexander Downer. It has also been reported that Minister for Industry, Innovation and Science Arthur Sinodinos, who has been on leave since September due to health problems, may have his portfolio duties reassigned. Immigration Minister Peter Dutton is also expected to be sworn in as the new Home Affairs Minister this week, with responsibility for the Home Affairs ‘super-ministry’ set up earlier this year.